Wednesday, June 11

SEBI - Portfolio managers


(PORTFOLIO MANAGERS)
Who is a Portfolio Manager?
Any person who pursuant to a contract or arrangement with a client, advises or directs or undertakes on behalf of the client (whether as a discretionary portfolio manager or otherwise) the management or administration of a portfolio of securities or the funds of the client, as the case may be is a portfolio manager.


What is the difference between a discretionary portfolio manager and a non- discretionary portfolio manager?
The discretionary portfolio manager individually and independently manages the funds of each client in accordance with the needs of the client in a manner which does not partake character of a Mutual Fund, whereas the non-discretionary portfolio manager manages the funds in accordance with the directions of the client.

What is the procedure of obtaining registration as a portfolio manager from SEBI?
An applicant for registration or renewal of registration as a portfolio manager is required to pay a non-refundable application fee of Rs.1,00,000/- (Rupees one lac only) by way of demand draft drawn in favour of ‘Securities and Exchange Board of India’, payable at Mumbai. The fee has to be forwarded to the Treasury & Accounts Division at the below mentioned address.
The application in Form A along with additional information (Form A and additional information available on SEBI Website :

www.sebi.gov.in.) and copy of the receipt of the application fee is to be submitted to the Investment Management Department, Division of Funds at the below mentioned address
SEBI
SEBI Bhavan, 3rd Floor A Wing,
Plot No. C4-A, ‘G’ Block,
Bandra-Kurla Complex,
Bandra (E), Mumbai - 400 051.

What does SEBI consider while granting the certificate of registration to the applicant?
SEBI takes into account all matters which it deems relevant to the activities relating to portfolio management. The applicant has to be a body corporate and must have necessary infrastructure like adequate office space, equipments and the manpower to effectively discharge the activities of a portfolio manager. The principal officer of the applicant should have either –a professional qualification in finance, law, accountancy or business management from a university or an institution recognised by the Central Government or any State Government or a foreign university; or an experience of at least ten years in related activities in the securities market including in a portfolio manager, stock broker or as a fund manager.
The applicant should have in its employment minimum of two persons who, between them, have atleast five years experience as portfolio manager or stock broker or investment manager or in the areas related to fund management. The applicant also has to fulfill the capital adequacy requirements, etc.

Who is the principal officer of a portfolio manager?

The principal officer of the applicant has either –
(i) a professional qualification in finance, law, accountancy or business management from a university or an institution recognised by the Central Government or any State Government or a foreign university;
or
(ii) an experience of at least ten years in related activities in the securities market including in a portfolio manager, stock broker or as a fund manager

What is the capital adequacy requirement of a portfolio manager?
The portfolio manager is required to have a minimum networth of fifty lac rupees.

Is it mandatory that a portfolio manager should appoint a custodian?
Every portfolio manager who has total assets under management of value more than five hundred crore rupees shall appoint a custodian. This condition will not be applicable to portfolio managers offering purely advisory services.

Is there any registration fee to be paid by the portfolio managers?
Yes. Every portfolio manager is required to pay a sum of ten lac rupees as registration fees at the time of grant of certificate of registration by SEBI.

How long does the certificate of registration remain valid?
The certificate of registration remains valid for three years.

Are the portfolio managers required to pay annual fee to SEBI?
No, the portfolio managers are not required to pay any annual fee to SEBI.

What is the procedure of renewing the certificate of registration?
The portfolio manager who wants to renew its certificate of registration has to make an application for renewal in Form A and Additional Information and pay a non-refundable fee of one lakh rupees along with the application three months before the expiry of the validity of the certificate.

How much is the renewal fee to be paid by the portfolio manager?
The portfolio manager is required to pay five lacs as renewal fees to SEBI.

Whether any contract should be made between the portfolio manager and its client?
Yes. The portfolio manager, before taking up an assignment of management of funds or portfolio of securities on behalf of the client, enters into an agreement in writing with the client clearly defining the inter se relationship and setting out their mutual rights, liabilities and obligations relating to the management of funds or portfolio of securities containing the details as specified in Schedule IV of the SEBI (Portfolio Managers) Regulations, 1993.

What fees can a portfolio manager charge from its clients for the services rendered by him?
The SEBI (Portfolio Managers) Regulations, 1993, have not prescribed any scale of fee to be charged by the portfolio manager to its clients. However, the regulations provide that the portfolio manager shall charge a fee as per the agreement with the client for rendering portfolio management services. The fee so charged may be a fixed amount or a return based fee or a combination of both. The portfolio manager shall take specific prior permission from the client for charging such fees for each activity for which service is rendered by the portfolio manager directly or indirectly (where such service is outsourced),

Is there any specified value of funds or securities below which a portfolio manager can’t accept from the client while opening the account for the purpose of rendering portfolio management service to the client?
The portfolio manager is required to accept funds or securities having a minimum worth of five lac rupees from the client while opening the account for the purpose of rendering portfolio management service to the client.

Is a portfolio manager permitted to invest the fund of its clients in derivatives?
A portfolio manager is permitted to invest in derivatives, including transactions for the purpose of hedging and portfolio rebalancing, through a recognized stock exchange. However, leveraging of portfolio is not permitted in respect of investment in derivatives. The total exposure of the portfolio client in derivatives should not exceed his portfolio funds placed with the portfolio manager and the portfolio manager should basically invest and not borrow on behalf of his clients.

What is the disclosure mechanism of the portfolio managers to their clients?
The portfolio manager provides to the client the Disclosure Document at least two days prior to entering into an agreement with the client. The Disclosure Document , inter alia, contains the quantum and manner of payment of fees payable by the client for each activity for which service is rendered by the portfolio manager directly or indirectly ( where such service is out sourced), portfolio risks, complete disclosures in respect of transactions with related parties as per the accounting standards specified by the Institute of Chartered Accountants of India in this regard, the performance of the portfolio manager and the audited financial statements of the portfolio manager for the immediately preceding three years.

On what basis is the performance of the portfolio manager calculated?
The performance of a discretionary portfolio manager is calculated using weighted average method taking each individual category of investments for the immediately preceding three years and in such cases performance indicators is also disclosed.

Where can an investor look out for information on portfolio managers?
Investors can log on to the website of SEBI www.sebi.gov.in for information on
SEBI rules, regulations and guidelines pertaining to portfolio managers. Addresses of the registered portfolio managers are also available on the website.

How can the investors redress their complaints?
Investors would find in the Disclosure Document the name, address and telephone number of the investor relation officer of the portfolio manager who attends to the investor queries and complaints. To help out the investors the grievance redressal and dispute mechanism is also provided by the portfolio manager in the Disclosure Document. Investors can approach SEBI for redressal of their complaints. On receipt of complaints, SEBI takes up the matter with the concerned portfolio manager and follows up with them. Investors may send their complaints to:
Office of Investor Assistance and Education,
Securities and Exchange Board of India,
SEBI Bhavan
Plot No. C4-A, ‘G’ Block,
Bandra-Kurla Complex, Bandra (E),
Mumbai - 400 051

Note: The answers given here are general in nature. The questions and the answers have been structured to enable the readers to gain a broad understanding of SEBI (Portfolio Managers) Regulations, 1993. For exact details the reader is advised to refer to the SEBI (Portfolio Managers) Regulations, 1993 which are available on our website. Readers may also note that these answers do not aim to explain the Regulations in force, since answers to questions involving particular case / fact pattern may depend upon administrative decisions and Court orders, if any, in respect of the same.

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